IMF urges Kuwait to control public sector wage bill, subsidies

International Monetary Fund report says Gulf state must safeguard against drop in oil revenues
IMF urges Kuwait to control public sector wage bill, subsidies
(Photo for illustrative purposes only)
By Andy Sambidge
Sat 07 Dec 2013 02:53 AM

Kuwait must control its public sector wage bill and state subsidies as part of a plan to safeguard against a drop in oil revenues in the future, according to officials from the International Monetary Fund (IMF).

IMF executive directors said that while economic growth of three percent is expected this year, the Gulf state must do more to diversify away from its high dependence on oil.

Directors noted that while the fiscal position is strong, a sustained period of low oil prices could deplete fiscal surpluses.

"To contain risks, free up resources for increased capital spending, and to save for future generations, directors agreed that it will be important to restrain current expenditure growth, including the public sector wage bill and generalized subsidies, and to enhance non-oil revenues," an IMF statement read.

Last month, it was reported that Kuwait's government plans to form a special committee to review subsidies on goods and services which are costing the Gulf Arab state more than KD4.5bn ($15.9 billion) a year.

The IMF said strong fiscal frameworks will be needed to guide public spending in the medium term.

Directors also cautioned that the recent large consumer debt relief programme announced in Kuwait could give rise to "moral hazard".

Governments in the GCC are increasingly focused on improving social conditions and wealth distribution.

The Kuwaiti parliament recently approved debt relief measures for its nationals for personal loans taken from commercial banks before end-March 2008.

IMF directors also underscored the need to foster Kuwaiti employment in the private sector by containing public sector wage and employment growth, enhance educational quality, further promote female labour force participation, and create an enabling environment for small and medium enterprises.

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